Oct. 2015 - Diversified We Stand, Divided We Fall

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FEATURE
30 |
TH E M R EP O RT
white Americans, who are able
to apply and qualify for conven-
tional mortgages, and the second
path traveled by minorities, who
are not able to qualify for home
mortgages.
Although housing advocacy
groups from around the country
recognize the existence of a dual
market in the housing industry,
these groups debate the many
factors that contribute to the rise
of this housing phenomenon. One
reason hypothesized by Cooper is
that minorities have lower credit
scores, which make them less
favorable candidates as mortgage
borrowers. Market contraction
and wage suppression in the
working classes and in manufac
-
turing segments resulting from
the economic collapse of 2007,
and the subsequent global reces-
sion in 2009, undermined job
stability among minority workers
occupying such jobs. Further,
the labor market hasn't recovered
equitably across racial groups,
revealing that while whites saw
higher wages and lower unem
-
ployment since 2009, blacks and
Hispanics are caught in lower
paying jobs with restricted wage
growth due to market uncertain
-
ties. Another reason could be the
stringent underwriting standards
that do not account for the
less traditional means in which
minorities may acquire income.
A final factor that arguably is a
prime mover of the dual market
is investors' aversion to purchase
mortgage-backed securities in
which a majority of the bonds are
mortgages secured by property
in under-served communities.
Lenders are therefore reluctant to
approve minorities who generally
live in such communities.
Although this disparity does
and will, at least for the near
future, continue to exist, the
government and the U.S. Supreme
Court have taken many actions
to try to help pave the way for a
future without this inequality.
Legislative and
Judiciary Role
T
here have been many
pieces of legislation passed
by Congress to make housing
more accessible and equal for
American citizens. Some of
the most important legislative
works enacted to govern fair
lending include the HMDA, the
Equal Credit Opportunity Act,
the Community Reinvestment
Act, and the Fair Housing
Act (FHA). Additionally, in
a landmark case, the U.S.
Supreme Court ruled that
disparate impact claims are
cognizable under the FHA.
In February 2013 HUD issued
an FHA disparate impact rule
to set a standard for determin-
ing if a lender's practices were, in
fact, discriminatory. The Agency
reviews a lender's mortgage loan
process to determine if there is
a disparate impact upon certain
protected classes. A disparate
impact occurs when a seemingly
neutral action causes discrimina-
tion in practice. Recently, the U.S.
Supreme court issued a ruling in
Tex. Dep't of Hous. & Cmty. Affairs v.
Inclusive Cmtys. Project, Inc. support-
ing disparate impact claims under
the Fair Housing Act.
The case commenced in 2008,
when the Inclusive Communities
Project, a non-profit organiza-
tion that seeks to promote racial
integration in Dallas, sued a
Texas state agency charged with
disproportionately allocating tax
credits to developers who build
low-income housing projects in
minority populated areas. In
its analysis, the Supreme Court
considered two of its earlier
decisions addressing the viability
of disparate-impact claims under
Title VII of the Civil Rights Act
of 1964 ("Title VII") and the Age
Discrimination in Employment
Act of 1967 ("ADEA"), both of
which the Court concluded au
-
thorized disparate-impact claims.
In issuing the majority opinion,
Justice Kennedy said that the
court found the "otherwise make
unavailable" language in the FHA
statute was equivalent in function
and purpose to the "otherwise
adversely affect" language in Title
VII and the ADEA. Although
disparate impact claims can be
brought under the FHA, the
court warned that "a disparate-
impact claim that relies on a
statistical disparity must fail if
the plaintiff cannot point to a
defendant's policy or policies
causing that disparity."
Increasing Lending
to Minorities
T
he Supreme Court's new
ruling regarding disparate
impact claims has and could
continue to cause curtailment of
lending to blacks and Hispan-
ics. However, the Court's ruling
should be viewed as the next
step in encouraging lenders
toward reaching an underserved
market, rather than a floodgate
to potential litigation. Instead of
being defensive about their lend
-
"The Supreme Court's new ruling
regarding disparate impact
claims has and could continue to
cause curtailment of lending to
blacks and Hispanics. However,
the Court's ruling should be
viewed as the next step in
encouraging lenders toward
reaching an underserved market,
rather than a floodgate to
potential litigation."